Easton pays off back loaded bond issue

The $6.2 million bonds cost the city more than $14 million due to delayed payments and rising interest rates

January 18, 2013|By JD Malone, Of The Morning Call

Imagine buying a new roof, and paying for it over 20 years, for a building that will be sold and demolished in less than three years. Or back loading the payments on your home mortgage, then handing it off to your children to struggle with.

Easton's 1992 capital bonds were something like that.

The city inked a deal for $6.2 million and spread the payments out over 20 years with increasing interest rates and payments over the back half of the deal. City finance director Chris Heagele cut the final check on the bond series in the first week of December. By then the city paid more than $14 million on the bonds – 10 percent of that, $1.42 million, last year.

At the time, then Mayor Thomas F. Goldsmith said the bonds took advantage of unusually low interest rates, which started at 3.8 percent, but crept to more than 6 percent over the final 10 years of the bond issue. According to stories published in The Morning Call, Goldsmith said the bonds fit his own requirement that they purchase items expected to last the city at least 20 years.

Most of what was purchased with the proceeds isn't visible today. There is the canal boat, the Josiah White II, in Hugh Moore Park. The pool in Heil Park was rebuilt. Pearl Street was resurfaced. But the city also spent $1 million to plug the roof of City Hall and $300,000 for air conditioning at the police headquarters – then both buildings were sold to the county and City Hall was demolished in 1995.

The bonds paid for a soup-to-nuts slurry of departmental wish lists. New playground equipment. A fire truck. Salt spreaders, a weed mower, furniture, various vehicles. Piecemeal road work, bridge maintenance, a new phone system. They even used some proceeds, $486,000, to pay a deficiency on another set of bonds.

City administrator Glenn Steckman likened it to buying a candy bar with a credit card and making minimum payments for 20 years. He added that such financial management often looks great at the beginning – the city paid $10,000 in 1993 on the bonds – but cause a great deal of indigestion down the road. Mayor Sal Panto Jr. said the city budget is littered with things that sounded nice at the time, but asked future administrations to find the money to pay the bill.

"If you want to bring back sustainability," Panto said of the bonds, "you can't pay for your groceries on a credit card."

Goldsmith, who defeated Panto's re-election bid in 1991, did not reply to requests for comment.

Five percent of the city's 2012 budget went toward the ephemera of 1992. Steckman and Heagele said the bond payments delay investments in economic development, cramp cash flow, and slow the process of making the city's finances easier to plan for the long run. Panto said he is tired of fighting year-to-year financial fires. But that's been the lay of the land in Easton for a long time.

Back loading bonds, or in Panto's words, "kicking the can down the road," has been standard operating procedure in Easton, according to Panto.

The charter, adopted by voters in 2008, forces the city to carry level debt. That provision makes it difficult, or impossible, to configure debt instruments in such a way that leaves future administrations with the bill.

Heagele said there are several ways to interpret the provision, but the city believes that structuring bonds to keep payments more or less the same makes it easier for long-term planning. Steckman said he feels a responsibility not to leave a future set of officials with a budget full of time bombs.

Steckman said purchases like the ones made with the 1992 money are now general fund expenses. He and Heagele believe bonds should pay for major investments that will outlast the payment period.

"They made the quick choices without thinking of the long-term impact," Steckman said.